Intro/Extro: Welcome to a life well lift. Grow, preserve,
Intro/Extro: and transfer your wealth with Ken Ouellette, CPM
Intro/Extro: certified portfolio manager and founder of Orca Wealth
Intro/Extro: Management. In this podcast, he will provide some
Intro/Extro: clarity and setting goals needed to build, preserve,
Intro/Extro: and transfer wealth and overcome some of life's
Intro/Extro: financial obstacles. Ken provides actionable steps to help
Intro/Extro: you plan through your financial ups and downs
Intro/Extro: in a way everyone can understand. Join us
Intro/Extro: on this journey where Ken will explore many
Intro/Extro: financial avenues, drawing from his three decades of
Intro/Extro: experience in helping others avoid risking a lifetime's
Intro/Extro: worth of work and savings by not having
Intro/Extro: a plan and a strategy in place. Now
Intro/Extro: onto the show.
Don Mespelt: Well, there's no more ho ho ho. It's
Don Mespelt: gone away, and here we are to stay.
Don Mespelt: My rhyme for the new year, Ken.
ken ouellette: Yep. New year, twenty twenty five. New challenges,
ken ouellette: new opportunities, new. That's the, that's the beauty
ken ouellette: of a new year. Even though this is
ken ouellette: just a calendar thing, but, yeah, there's a
ken ouellette: lot a lot of work to be done
ken ouellette: in the beginning of the year.
Don Mespelt: Yeah. There's I mean, the people always, you
Don Mespelt: know, have their goals and what their plans
Don Mespelt: are, and, you know, they're gonna work out
Don Mespelt: and everything else. And a lot of those
Don Mespelt: don't really stick with people, but, you know,
Don Mespelt: it's it's a person individual choice. But when
Don Mespelt: it comes to financials, what are the what
Don Mespelt: are the what do how do you go
Don Mespelt: from there? What do you do?
ken ouellette: Yeah. I think maybe that's a great great,
ken ouellette: launch board for today's day's talk. I think
ken ouellette: we're gonna go we'll just talk about some
ken ouellette: of the things that I impress upon my
ken ouellette: clients beginning of the year. Put kinda put
ken ouellette: them in first first, you know, in front
ken ouellette: of their minds, things to think about, things
ken ouellette: we wanna check off typically by February. Right?
ken ouellette: So that kinda just tees us up for
ken ouellette: the rest of the year. Really, there's nothing
ken ouellette: that comes as a surprise. I mean, I
ken ouellette: think if there's anything that we've learned is
ken ouellette: financial planning is all about eliminating as best
ken ouellette: you possibly can surprises. Yeah. Right? Nobody likes
ken ouellette: surprises. And so if we've already talked about
ken ouellette: them at the beginning of the year, the
ken ouellette: two most important planning periods in my view
ken ouellette: is end of the year, beginning of the
ken ouellette: year.
Don Mespelt: And I was gonna bring that up because
Don Mespelt: you just said the beginning of the year
Don Mespelt: is merely just a calendar thing. But financially,
Don Mespelt: is it really just a calendar thing? Or
Don Mespelt: is it actually kind of more? I know
Don Mespelt: the end of the year, I could see
Don Mespelt: that with taxes and things like that would
Don Mespelt: definitely be. But is the beginning of the
Don Mespelt: year just, you know, it's a year away
Don Mespelt: from doing your taxes?
ken ouellette: Well, no. I mean, I think it was
ken ouellette: more psychological than anything else. You know, in
ken ouellette: the That's thirty year retirement. Right? You're does
ken ouellette: does the beginning of the year really make
ken ouellette: that big of a difference? No. Because you've
ken ouellette: got thirty of those, hopefully, God willing. But
ken ouellette: with that said, you wanna prepare each year
ken ouellette: for what it's so it's it's just a
ken ouellette: good place to take a pause. Look at
ken ouellette: where you've been. We kinda do that at
ken ouellette: the year end stuff. Look at your performance,
ken ouellette: look at your plan, and then iron out
ken ouellette: from what happened the previous year, how your
ken ouellette: plan did versus your goals. Then look at
ken ouellette: this year's plan, which will be the same
ken ouellette: as the end of the year's plan, hopefully.
ken ouellette: It hasn't changed by year end. And then
ken ouellette: let's say, okay. This is how we did
ken ouellette: last year. This is what the expectations are
ken ouellette: for this year. Has anything changed? And we're
ken ouellette: gonna I think in this podcast, we'll go
ken ouellette: over some of the main things we wanna
ken ouellette: cover in that initial meeting at the beginning
ken ouellette: of the year through January or February to
ken ouellette: make sure that nothing has changed on those
ken ouellette: items and that for this year, we just
ken ouellette: are set for one year in terms of
ken ouellette: planning prospects.
Don Mespelt: So you actually have you have two variables
Don Mespelt: here. A, the stock market. You're kinda just
Don Mespelt: gonna say what might happen this year. Right.
Don Mespelt: And b, your plans. If you haven't changed
Don Mespelt: any plans and you're just having fun, then
Don Mespelt: nothing changes there. But if you all of
Don Mespelt: a sudden, I wanna do a second trip
Don Mespelt: to Venezuela, you know, then you have to
Don Mespelt: plan those in. So those are two variables.
ken ouellette: Yeah. So we know that with the of
ken ouellette: those two variables, there's only one we can
ken ouellette: control, and that's the planning. We can't control
ken ouellette: the market. We try to take what we
ken ouellette: can't control and minimize it as little as
ken ouellette: possible to how it's gonna affect the client's
ken ouellette: relationship for that year with their plan. You
ken ouellette: know, you and I have spoken offline about
ken ouellette: investing is really ninety percent mental. If we
ken ouellette: get the plan in place, we look at
ken ouellette: alright. Based off of last year and the
ken ouellette: year before is inflation, which changed a lot
ken ouellette: of people's expectation for their their need for
ken ouellette: how much money they're gonna need. So we
ken ouellette: need to evaluate at the beginning of the
ken ouellette: year, how does the plan how's it withstood
ken ouellette: the last couple of years? How are you
ken ouellette: positioned now? What in your because we wanna
ken ouellette: make people they're comfortable. Right? So there's nothing,
ken ouellette: like I said, nothing unexpected that's gonna come
ken ouellette: up.
Don Mespelt: Uh-huh.
ken ouellette: Because we can't control the market. So we
ken ouellette: have to factor in good markets, bad markets,
ken ouellette: calamities, because there's gonna be some calamities in
ken ouellette: twenty twenty five. We just don't know what
ken ouellette: it is. And when they try to project
ken ouellette: what the calamities are gonna be, they never
ken ouellette: get it right. So that's why they're calamities
ken ouellette: because you you don't know that they're gonna
ken ouellette: happen. So we try to anticipate what the
ken ouellette: market reaction will be to varying calamities. Really,
ken ouellette: really bad, really good, and just ho And
ken ouellette: then we we stress test it with the
ken ouellette: portfolio, but we'll kinda get into that when
ken ouellette: we go over the bullets of what what
ken ouellette: people need to really address, at the beginning
ken ouellette: of the year. How's that sound?
Don Mespelt: That's that's all we just covered half of
Don Mespelt: it in my head. I'm just thinking, I
Don Mespelt: don't know what other half is gonna go
Don Mespelt: Yeah. Other than, dun dun dun.
ken ouellette: It might be a little bit more than
ken ouellette: a half here, but so let's start with
ken ouellette: with number one that, it it's first and
ken ouellette: foremost in my mind.
Don Mespelt: Okay. What's that?
ken ouellette: We wanna update the financial plan. Right? Any
ken ouellette: changes, goals, work, family life, are you still
ken ouellette: on track? If not, why, and what needs
ken ouellette: to change? So there If I
Don Mespelt: can right there, don't you have that really
Don Mespelt: cool thing that you put all the numbers
Don Mespelt: in that says you got a hundred percent
Don Mespelt: chance of achieving your goal?
ken ouellette: Exactly. So why do you think we do
ken ouellette: that?
Don Mespelt: Well, just that reason. I mean, to to
Don Mespelt: to put some reality into the thing, if
Don Mespelt: if if I have a fifty percent chance
Don Mespelt: to achieve my goal, then we gotta reevaluate.
ken ouellette: Right. And, also, I think more importantly than
ken ouellette: that, then that's an important aspect because if
ken ouellette: you are at a fifty, you there's gotta
ken ouellette: be some pretty long conversations. So we know
ken ouellette: the beauty of financial planning, we've talked about
ken ouellette: this in the past and doing these financial
ken ouellette: plans, is that there's only really two variables
ken ouellette: there. There's the performance of the portfolio, and
ken ouellette: then there's the client's actions.
Don Mespelt: Expectations?
ken ouellette: Well, not expectation, but did they Oh,
Don Mespelt: they gotta do their part.
ken ouellette: Did they do their part? Did they withdraw
ken ouellette: the amount that we've agreed upon and stress
ken ouellette: test that with the portfolio? Mhmm. So if
ken ouellette: if we're if somebody's at a fifty and
ken ouellette: we were at an eighty or ninety percentile,
ken ouellette: in the plan, which we wanna be between
ken ouellette: seventy and ninety, that's kind of the sweet
ken ouellette: spot. So if somebody's at a fifty, either
ken ouellette: the adviser failed miserably in the performance last
ken ouellette: year and upset the plan or the client
ken ouellette: withdrew more than that what they agreed to
ken ouellette: withdraw. Something in life created a problem where
ken ouellette: they had to take out more that wasn't
ken ouellette: anticipated for.
Don Mespelt: Uh-huh.
ken ouellette: To find out, okay, what what could happen?
Don Mespelt: Uh-huh. Alright. Well And and it's just like
Don Mespelt: if I didn't tell you that I was
Don Mespelt: planning that trip to Venezuela and I took
Don Mespelt: out an extra thirty grand, you'd be a
Don Mespelt: little upset.
ken ouellette: Yeah. And I had a you know, in
ken ouellette: the past, I had I had, like for
ken ouellette: instance, I had a client, many years ago.
ken ouellette: Great plan. Really was a the numbers were
ken ouellette: were very good year of year over year.
ken ouellette: And then in March, the client comes to
ken ouellette: me and says, listen. My daughter's getting married
ken ouellette: again, and we want to take out forty
ken ouellette: five thousand dollars for the wedding. That's an
ken ouellette: expensive wedding.
Don Mespelt: I wasn't my my I still get my
Don Mespelt: jaw off there at forty five.
ken ouellette: And it's a second wedding. Alright.
Don Mespelt: So It's yeah. But forty five for any
Don Mespelt: wedding. Good golly.
ken ouellette: Right. And so I had to have a
ken ouellette: hard conversation with a client that, yes, you
ken ouellette: can do that. But you have to realize
ken ouellette: that when you're eighty, that daughter has to
ken ouellette: give you some of that money back, or
ken ouellette: otherwise, your plan is is going to fail.
ken ouellette: Right? So there's you know, that's why we
ken ouellette: plan because there's there's a repercussion for every
ken ouellette: action you do in the plan. The the
ken ouellette: client can do that. You know, we're we're
ken ouellette: just they're the owner. We, as advisors are
ken ouellette: the CFO, but the owner has the final
ken ouellette: decision. But we as the the the chief
ken ouellette: financial officer for that client, we have to
ken ouellette: tell them, okay. You can do that. Yeah.
ken ouellette: But Here's here's what that is here's gonna
ken ouellette: be the ramifications of doing that.
Don Mespelt: Now with that, I mean, don't you you
Don Mespelt: have your emergency fund, which you probably should
Don Mespelt: make sure that's an online too. But, don't
Don Mespelt: you put money aside saying I have, you
Don Mespelt: know, she's gonna get married soon, so I
Don Mespelt: wanna put money there with don't you I
Don Mespelt: mean, isn't that part of the planning? I
Don Mespelt: mean, you just don't come out and say
Don Mespelt: that. Right?
ken ouellette: It should be, but it it not always
ken ouellette: the case. And let let's define emergency fund.
ken ouellette: Okay? Okay. So what is your understanding of
ken ouellette: emergency fund?
Don Mespelt: Your total bills that you're gonna have for,
Don Mespelt: like, three or four months, and some people
Don Mespelt: say up to six months. So that way,
Don Mespelt: if everything went south, you can just live
Don Mespelt: off your savings for at least that long
Don Mespelt: a time without having to do anything.
ken ouellette: That's that's a pretty good definition, Don.
Don Mespelt: Wow. Thanks. But, yeah, the big caveat is
Don Mespelt: some people some experts say six, some say
Don Mespelt: three, and it's really I think as you
Don Mespelt: get older, it kinda should go up proportionally
Don Mespelt: in my opinion. Is that right? Yeah. So
Don Mespelt: I have starting out as a teen or
Don Mespelt: as a twenty year old, I mean, having
Don Mespelt: six months saved up? Right. I barely had
Don Mespelt: enough Top Rama to live six months.
ken ouellette: Yeah. So that emergency plan, I like to
ken ouellette: I'd like to do a minimum of six
ken ouellette: months. Yeah. I've just found, six months. And
ken ouellette: when I say emergency fund, I mean, that's
ken ouellette: that's money that is not market related that
Don Mespelt: you can
ken ouellette: get at if you were cut off from
ken ouellette: everything, and you're not gonna have to force
ken ouellette: liquidate something at a bad time. So if
ken ouellette: you only have three months worth of emergency
ken ouellette: expenses and you're cut off, you lose a
ken ouellette: job, something happens where you have no income,
ken ouellette: you you go three months, then you're running
ken ouellette: out of money, and then you're gonna have
ken ouellette: to make the markets down, let's say, twenty
ken ouellette: five percent, then you have to go in
ken ouellette: and sell things at an inopportune time.
Don Mespelt: Uh-huh.
ken ouellette: So I try to do six months. At
ken ouellette: best, I encourage some clients to go as
ken ouellette: far as a year just so that gives
ken ouellette: us the flexibility. Right now, it's not so
ken ouellette: penal. Right? Because Yeah. You can get four
ken ouellette: point five percent in treasuries and money markets
ken ouellette: at the current time. So you're earning something
ken ouellette: on those those short term monies that you
ken ouellette: you don't you can take it out, and
ken ouellette: you're not gonna have to worry about where
ken ouellette: the market's at, what's going on with the
ken ouellette: economy. Uh-huh. That that creates a a sense
ken ouellette: of, comfort. Now when the when the interest
ken ouellette: rates were at less than one percent, it
ken ouellette: was a stretch to go six months because
ken ouellette: your six months you were earning not what
ken ouellette: inflation was. That created a a major issue
ken ouellette: for for people. But now I think you
ken ouellette: can you can look at it. You can
ken ouellette: have a conversation with your adviser. You know,
ken ouellette: how much do we have in the emergency
ken ouellette: fund, and what what is that earning?
Don Mespelt: Uh-huh. And the high yield accounts aren't as
Don Mespelt: high yield anymore, but they're still there.
ken ouellette: Yeah. They're still not bad. I mean, historically
ken ouellette: speaking, if you can get four and a
ken ouellette: half percent on short term emergency funds money,
ken ouellette: that that's you know, we're set to spread
ken ouellette: one percent above inflation right now. I'm comfortable
ken ouellette: with that.
Don Mespelt: Mhmm.
ken ouellette: So you
Don Mespelt: got your emergency fund going then, and you
Don Mespelt: you also talked about, checking, what was it,
Don Mespelt: your beneficiaries and stuff like that?
ken ouellette: Yeah. It's a good time to, review beneficiaries
ken ouellette: because, you know, things change. And, on a
ken ouellette: yearly basis, we we like to to to
ken ouellette: have that in that first meeting. You know,
ken ouellette: has anything changed in your beneficiaries? You know,
ken ouellette: sometimes oftentimes, we'll have a copy of their
ken ouellette: beneficiaries to provide them. Uh-huh. That way they
ken ouellette: can review that and make sure, yeah, that's
ken ouellette: that's set. So there there you know, you
ken ouellette: can have a lot of issues with beneficiaries
ken ouellette: if they're not done correctly. Right? We wanna
ken ouellette: make sure that and when I say issues,
ken ouellette: I'm I'm not talking so much as family
ken ouellette: issues, which those are those that's a whole
ken ouellette: another podcast, but you'll also have taxation issues,
ken ouellette: which are important.
Don Mespelt: Oof.
ken ouellette: Do you wanna recognize those as much possible?
Don Mespelt: So Oh, totally. I can see that.
ken ouellette: Yeah. My name and your like, for instance,
ken ouellette: I'll give you a good good cases. So
ken ouellette: it used to be very prevalent for people
ken ouellette: as their beneficiaries. They would put their estate.
ken ouellette: They would put this person something happens to
ken ouellette: that person, their estate. Uh-huh. That creates a
ken ouellette: tax issue. You wanna name individuals as or
ken ouellette: charities as beneficiaries when whenever possible. So we
ken ouellette: we try to we we try to get
ken ouellette: if we ever see a client that puts
ken ouellette: their estate as the beneficiary because then it
ken ouellette: has to go through the estate process. It's
ken ouellette: just not
Don Mespelt: Efficient.
ken ouellette: Efficient, and it's and it creates a tax
ken ouellette: nightmare. So that's something that we'll look at
ken ouellette: and and address with the client individually.
Don Mespelt: And now you schedule these reviews every year
Don Mespelt: like this in the beginning to get all
Don Mespelt: this?
ken ouellette: Yeah. We'll we'll start ramping that up right
ken ouellette: now. It's a good time because people are
ken ouellette: they're calling they'll they'll be calling in in
ken ouellette: probably the second or third week in January
ken ouellette: because they wanna get their their ten ninety
ken ouellette: nines and their information. Yeah. So at that
ken ouellette: point, we say, yeah. That's great. Let's schedule
ken ouellette: a time to to do our quick review,
ken ouellette: look at the for the year, and, we
ken ouellette: can discuss those ten ninety nines and when
ken ouellette: those are gonna be issued as well. It's
ken ouellette: a good good good launching point because the
ken ouellette: clients are, are gonna be reaching out to
ken ouellette: us because they wanna get their taxes done.
ken ouellette: Usually, most clients wanna get them done early.
Don Mespelt: Well, I I assume that would be it.
Don Mespelt: Yeah. When you stress now I'm bouncing around
Don Mespelt: a little bit, but I'm thinking of the
Don Mespelt: things that you mentioned. When you stress test,
Don Mespelt: you're talking about that's for the year, and
Don Mespelt: then you also have to do a long
Don Mespelt: term one too. Right? And that's what I'm
Don Mespelt: thinking of the test that you've done with
Don Mespelt: me.
ken ouellette: Yeah. The the plan itself, does that pretty
ken ouellette: robustly. It's it's called the Monte Carlo analysis,
ken ouellette: and I know that sounds like it's gambling,
ken ouellette: but I don't know what whoever named that.
ken ouellette: I should probably look that up, but it's
ken ouellette: it's not a real good name. Right? Monte
ken ouellette: Carlo. They call it
Don Mespelt: the gamble with your retirement.
ken ouellette: The craps table analysis. You know, it's just
ken ouellette: not real real good. But the the thought
ken ouellette: behind it, it's very good. So it takes
ken ouellette: a thousand different market cycles, and it, varying
ken ouellette: market conditions and back test it with your
ken ouellette: portfolio and your allocation and tells you what
ken ouellette: you would do in varying market cycles over
ken ouellette: a period of time. And then it spits
ken ouellette: out a probability of successful outcomes or negative
ken ouellette: outcomes. If you're if you're at a, we
ken ouellette: talked about that seventy to ninety percent. So
ken ouellette: if you're at a seventy five, that means
ken ouellette: if we back test it with seven hundred
ken ouellette: and fifty different market cycles, mark market scenarios,
ken ouellette: that the market has gone up down every
ken ouellette: year, that means seven hundred and fifty out
ken ouellette: of a thousand you would meet or exceed
ken ouellette: your goals. That's excellent. Yeah. Yeah. That's that's
ken ouellette: kind of the gold standard. Right? On two
ken ouellette: hundred and fifty of those, more than likely
ken ouellette: you would exceed, but you did there would
ken ouellette: have to be back to back, like, financial
ken ouellette: calamities that that that year over year over
ken ouellette: year, decade over decade before you not do
ken ouellette: it, which is not really it's not probable.
ken ouellette: Right? So we're all Yep. Is dealing with
ken ouellette: probabilities when we do these, but the seven
ken ouellette: the seventy five, seventy to ninety. No. So
ken ouellette: if you're at a hundred, right, that means
ken ouellette: there's no market cycle in history. Even we
ken ouellette: go back to back bad markets where you
ken ouellette: would have not met or exceed your goal.
ken ouellette: So you think, well, well, I wanna be
ken ouellette: a hundred, right? Well, the probabilities are so
ken ouellette: stark against that, that you're probably sacrificing a
ken ouellette: little bit in your life, or you're gonna
ken ouellette: create an estate problem above ninety unintended circumstances
ken ouellette: gonna happen. We want people to enjoy their
ken ouellette: life, and we also don't wanna create a
ken ouellette: unintended estate planning situation that they don't they
ken ouellette: don't really want to do or go through,
ken ouellette: upon their passing to their heirs. We try
ken ouellette: to keep people between that seventy and ninety
ken ouellette: because if it gets above ninety, then we
ken ouellette: have to have different conversations. They're gonna leave
ken ouellette: more than what they've anticipated to leave, and
ken ouellette: then we've got to deal with
Don Mespelt: Or that might be their plan.
ken ouellette: It could be their plan. Right. But we
ken ouellette: would plan that in how much they wanna
ken ouellette: leave. And so we plan that in, and
ken ouellette: then we get to the seventy to ninety.
Don Mespelt: Oh, I see. Yeah. That totally.
ken ouellette: Right? So, but if somebody's at has has
ken ouellette: planned that in and they're they're at a
ken ouellette: hundred, well, you've got so much of an
ken ouellette: overage that maybe, you know, you you can
ken ouellette: do a little bit more in retirement, spend
ken ouellette: a little bit more money, retire a little
ken ouellette: earlier, things of that nature, or just do
ken ouellette: more of what you wanna do because you've
ken ouellette: already met or exceeded all your other goals
ken ouellette: on a favorable probability.
Don Mespelt: Do you get clients that are, like, give
Don Mespelt: you okay, Ken. I have a daughter that's
Don Mespelt: gonna get married potentially. We're looking at buying
Don Mespelt: this house here for x amount, and, I
Don Mespelt: also wanna do vacation. What are my odds?
Don Mespelt: Or, you know, I mean, is that kinda
Don Mespelt: you just you lay it all out Yeah.
Don Mespelt: With you. Yeah.
ken ouellette: And So we'd have scenarios. So these are
ken ouellette: great. You you you build a plan, and
ken ouellette: then you can put in a scenario. Hey.
ken ouellette: I wanna buy a hundred and fifty thousand
ken ouellette: dollar RV and travel the country. Great. Let's
ken ouellette: plug that cost of that that variable into
ken ouellette: the plan as a scenario. How does it
ken ouellette: affect your overall retirement plan goals? What does
ken ouellette: that do to your probabilities? That's what we
ken ouellette: did with the person that was having the
ken ouellette: client that was having the daughter, second marriage,
ken ouellette: forty five dollars.
Don Mespelt: We plugged it in and had
ken ouellette: a very negative consequence on their plan. So
ken ouellette: at that point, the client has to decide.
ken ouellette: Okay. Is it worth doing? Can I downsize
ken ouellette: the wedding to make it where I can
ken ouellette: fit this in and not have to worry
ken ouellette: about my retirement? Otherwise, they're going to have
ken ouellette: a consequence down the road, and they just
ken ouellette: it's our job to make them aware of
ken ouellette: that. Not to tell them not to tell
ken ouellette: them no, not to tell them yes, but
ken ouellette: to say, okay. Based off the planning that
ken ouellette: we've done for you, this is the consequence
ken ouellette: of that action.
Don Mespelt: Wow. When you lay it out like that,
Don Mespelt: that's totally you know? Do you find that
Don Mespelt: they still go ahead sometimes? Or
ken ouellette: Yes. Wow. Some do. I mean, some do.
ken ouellette: And so then then the tough conversation has
ken ouellette: to be that I I have to explain
ken ouellette: to them that we have to downsize the
ken ouellette: amount that they're gonna receive in retirement to
ken ouellette: still be successful.
Don Mespelt: Uh-huh.
ken ouellette: But that's the client's choice. Totally. Yeah. Wow.
ken ouellette: We make recommendations. They make decisions.
Don Mespelt: That's,
ken ouellette: you can't make those decisions unless you have
ken ouellette: a plan.
Don Mespelt: Oh, yeah.
ken ouellette: Otherwise, you're just flying by the handle, and
ken ouellette: you're just at a whim of whatever happens.
ken ouellette: Plan, plan, plan, and that's why these early,
ken ouellette: plan meetings are important.
Don Mespelt: So how about the end of the year
Don Mespelt: as we bring this up before taxes and
Don Mespelt: everything like that? Because you're probably doing some
Don Mespelt: of those now too.
ken ouellette: Yeah. That's that's more just to your point,
ken ouellette: that's that's more tax related. So we we
ken ouellette: assess their tax situation, their gains for the
ken ouellette: year. Is there any losses that they can
ken ouellette: take to reduce their tax situation, things of
ken ouellette: that nature. So that that's that's more dollars
ken ouellette: and cents balance sheet stuff that is just
ken ouellette: tax related. Uh-huh. We try to take care
ken ouellette: of the most of the tax related stuff
ken ouellette: in November, late October.
Don Mespelt: Okay. Okay. The the, the year round issue
Don Mespelt: is always, debt in general. How do you
Don Mespelt: Yeah. I mean
ken ouellette: Yeah. So In that meeting, in that initial
ken ouellette: meeting, we you know, you got the financial
ken ouellette: plan, and then you've got the budget budgetary
ken ouellette: process. So for some clients, they like us
ken ouellette: to do, work on their budgets with them.
ken ouellette: And and the budget and the budget is
ken ouellette: where you, you know, you iron out the
ken ouellette: emergency funds, what their expenses look like, where
ken ouellette: can we reduce some expenses, where can we
ken ouellette: well, you know, how how do those fit?
ken ouellette: Do do does your budget actually fit with
ken ouellette: the outlay of what the plan's gonna provide?
ken ouellette: Yeah. Know, that gives us a real good
ken ouellette: sign. You know, if their budget if they're
ken ouellette: if they need eight thousand a month because
ken ouellette: they're they live in Florida and their homeowners
ken ouellette: insurances went from six thousand to fourteen thousand,
ken ouellette: and that's a budgetary item. We need to
ken ouellette: put that into the plan and see, okay.
ken ouellette: Well, how how right. Now you're we know
ken ouellette: you've said you wanted this much, and we've
ken ouellette: planned for this much, but now your budget's
ken ouellette: showing us you're gonna need this much. So
ken ouellette: we need to get realistic on that and
ken ouellette: see when we start need to start doing
ken ouellette: our scenarios.
Don Mespelt: With the the end of the year stuff,
Don Mespelt: I know we're talking about budgeting and things
Don Mespelt: like that. How do you I mean, do
Don Mespelt: you just do you evaluate midyear saying, okay.
Don Mespelt: You you have to take out this much,
Don Mespelt: and so, you know, we should start doing
Don Mespelt: it now. Or is that the conversation you
Don Mespelt: have at the beginning as well? Yeah. Yeah.
Don Mespelt: We do it in the beginning and then
Don Mespelt: What do I'm not there yet. What's it
Don Mespelt: called? The the the you recommend, your your
Don Mespelt: mandatory withdrawals. What's those called?
ken ouellette: Yes. Yes. For those that are seventy three
ken ouellette: and above, there there's something called the required
ken ouellette: minimum distribution.
Don Mespelt: RMDs. Dang it.
ken ouellette: RMDs. Yeah. And so they have to take
ken ouellette: that out during the year, in that calendar
ken ouellette: year. And sometimes it's advantageous to take the
ken ouellette: RMD early, and sometimes it's advantageous to take
ken ouellette: the RMD later. What what do you think
ken ouellette: would be the variable there, Don?
Don Mespelt: You're gonna die?
ken ouellette: Well, yeah. That's good. Yeah. That's that's definitely
ken ouellette: a very
Don Mespelt: when you're late on
ken ouellette: come out. Even if you pass away, your
ken ouellette: heirs have to take the RMD out in
ken ouellette: that year.
Don Mespelt: For that year?
ken ouellette: Yeah. Yeah. So the RMD is gonna come
ken ouellette: care of it. What I That's crazy. So
ken ouellette: if the market I do this basically on
ken ouellette: valuation. So I look at the historical valuation
ken ouellette: of the market. And if the market is
ken ouellette: at an historically high valuation and we're going
ken ouellette: into the new year, I encourage clients to
ken ouellette: take their RMD early because we wanna liquidate
ken ouellette: a a a higher value. Yeah. Right? We
ken ouellette: wanna sell when it's high and and and,
ken ouellette: you know, if anything, not sell when it's
ken ouellette: low. So if the market like, this is
ken ouellette: a great year of an example. I will
ken ouellette: be recommending to my clients to take their
ken ouellette: RMDs in January, February of this year because
ken ouellette: the market is at an historically high valuation.
ken ouellette: The probability is not a known, but the
ken ouellette: market could be fifteen percent less at the
ken ouellette: end of the year because historically, we're at
ken ouellette: a high valuation. I don't wanna have to
ken ouellette: sell something to get their RMD out of
ken ouellette: their IRA, at a lesser value. So at
ken ouellette: the very least, if they don't wanna take
ken ouellette: it now, they wanna take it to the
ken ouellette: end of the year for whatever reason, we
ken ouellette: will we will liquidate enough to cover that
ken ouellette: RMD and just keep it in the kind
ken ouellette: of a a liquid money market or something
ken ouellette: of that nature. But I like to distribute
ken ouellette: it out at the beginning of the year.
ken ouellette: That way they'd have those funds. And, you
ken ouellette: know, if the clients are are diligent and
ken ouellette: they're responsible with their plan, they they'll take
ken ouellette: that money and they'll use that throughout the
ken ouellette: year and not just, wow. You know, I've
ken ouellette: got a big huge lump sum. Let's go
ken ouellette: spend it in January.
Don Mespelt: Yeah. And then, you know, then we got
ken ouellette: we got stress on the plan the latter
ken ouellette: part of the year. It depends on the
ken ouellette: case by case analysis of the client. You
ken ouellette: get to know, you know, how that's gonna
ken ouellette: work. But by and large, the rule of
ken ouellette: thumb is high valuation at the
Don Mespelt: end of the year, beginning of
ken ouellette: the year, we take the I I encourage
ken ouellette: people to take the RMD early.
Don Mespelt: So the biggest takeaways that I'm getting from
Don Mespelt: this, the first one is just schedule your
Don Mespelt: your your meeting with your financial adviser.
ken ouellette: Yeah.
Don Mespelt: Because if you don't do anything else, your
Don Mespelt: financial adviser, they're a good one. They're gonna
Don Mespelt: bring up all these things for you. So
Don Mespelt: if you don't if you're brain dead, if
Don Mespelt: you schedule a meeting, you should be okay.
ken ouellette: Yeah. That's the that's the main but there
ken ouellette: is a couple of the points that they
ken ouellette: need to to look at in the in
ken ouellette: that initial meeting.
Don Mespelt: Remember, I said the brain dead part. So
Don Mespelt: that's where you come in and help me.
ken ouellette: Yeah. Let me cover a couple more points
ken ouellette: that I think are important, just for just
ken ouellette: just to kinda round out this part of
ken ouellette: the planning process. Okay. We wanna look at
ken ouellette: does your allocation look good for twenty twenty
ken ouellette: five? Okay. Because we just talked about the
ken ouellette: market had a really good year out last
ken ouellette: year. The previous year had a really good
ken ouellette: year. The valuations are high. So sometimes your
ken ouellette: allocation gets skewed. And the beginning of the
ken ouellette: year is a good time to look at
ken ouellette: your evaluate your your allocation and see that
ken ouellette: it does it match the plan? Right? So
ken ouellette: giving it give you a good example. If
ken ouellette: you're if the plan is looked at the
ken ouellette: historical number on the assets, whether it be
ken ouellette: bonds, cash, stocks, commodities, and one of those
ken ouellette: groups has done very, very well. You could
ken ouellette: get out of skew on your value on
ken ouellette: your, allocation. Right? That let's say, to make
ken ouellette: it real simple, let's say you're at a
ken ouellette: seventy twenty ten. Seventy percent equities, twenty percent
ken ouellette: fixed income, and ten percent cash. Say make
ken ouellette: it simple. The market's really good. What does
ken ouellette: that do to your allocation?
Don Mespelt: Well, I guess I mean, you know, you
Don Mespelt: said we're at seventy twenty ten. I mean
Don Mespelt: but what if, you know, if it's been
Don Mespelt: really good and it might have been went
Don Mespelt: up to eighty even instead of the
ken ouellette: Exactly. Exactly. You've gotten you've gotten over allocated
ken ouellette: on the equity side. Right? And so discipline
ken ouellette: in investing is having your allocation meet your
ken ouellette: plan. What happens when equities go to eighty
ken ouellette: percent and the bonds have gone down in
ken ouellette: the portfolio and and cash has stayed stagnant,
ken ouellette: it's a hard conversation to tell somebody, hey.
ken ouellette: These things have done really well. We wanna
ken ouellette: curve back that thing that has done really
ken ouellette: well for you. Yeah. Clients don't like to
ken ouellette: do it. They don't like it.
Don Mespelt: Well, no. They just wanna ride the wave
Don Mespelt: as long as they can.
ken ouellette: Right. But the allocation protects you from the
ken ouellette: wave when the tide comes out. So it
ken ouellette: forces you to buy the things that are
ken ouellette: out of favor. And allocation can go really
ken ouellette: deep. Right? You can go mid cap, small
ken ouellette: cap, international stocks, domestic stocks, emerging markets. So
ken ouellette: we're talking the macro, but we take it
ken ouellette: to the to the to the real to
ken ouellette: the real surgical side of each slice of
ken ouellette: the equities, each slice of the fixed income.
ken ouellette: So I'll give you a good example here.
ken ouellette: Okay. Emerging markets, I tend to like about
ken ouellette: ten percent in emerging markets. Why? Because emerging
ken ouellette: markets historically emerging markets for the listener are
ken ouellette: markets that are like Brazil, smaller European countries,
ken ouellette: Asian countries that are that are not as
ken ouellette: as large, and they're growing at a typically
ken ouellette: at a larger rate because they're smaller. They're
ken ouellette: smaller economies, so they grow a little bit
ken ouellette: quicker. Larger economies like ours, Europe, they grow
ken ouellette: at a slower clip. Okay. Emerging markets have
ken ouellette: done atrociously bad versus the the more mature
ken ouellette: markets over the last three to five years.
ken ouellette: So it's difficult conversation to have with the
ken ouellette: client. Hey. We're our emerging markets, what we
ken ouellette: started at ten is now at five, but
ken ouellette: we really need to be at ten. They're
ken ouellette: rightly so, they're gonna say, well, why would
ken ouellette: we throw money after some at something that's
ken ouellette: done so poorly? Well, because that cycle is
ken ouellette: going to change. I don't know when. I
ken ouellette: know the allocation historically has done so well
ken ouellette: that we need to buy things that we
ken ouellette: don't wanna buy when they're low and reduce
ken ouellette: things that we don't wanna sell when they're
ken ouellette: high. Make sense?
Don Mespelt: Buy low, sell high.
ken ouellette: Yeah. That it and reallocation forces you to
ken ouellette: do that. It forces it protects your plan,
ken ouellette: and then it also allows you to be
ken ouellette: able to buy things that are out of
ken ouellette: favor when nobody else likes them. That's how
ken ouellette: money is really generated on a consistent basis
ken ouellette: by buying things that are out of favor
ken ouellette: until they come in favor, reducing them and
ken ouellette: buying more of the other things that's out
ken ouellette: of favor and just doing that every year
ken ouellette: looking at that. Now you have to take
ken ouellette: into tax considerations. So, you know, so those
ken ouellette: things that have gone up a high, you
ken ouellette: have to look at it. Where is it
ken ouellette: in a tax deferred account such as an
ken ouellette: IRA versus a tax Uh-huh. What's gonna be
ken ouellette: the tax consequence of doing this? So we
ken ouellette: we need to intermix in there where we
ken ouellette: make those changes so it's most, you know,
ken ouellette: so it's not too too harmful on a
ken ouellette: taxation basis. So that's another sliver in there.
Don Mespelt: That's a big sliver, Ken.
ken ouellette: It's big. I mean and it's those are
ken ouellette: those are tough conversations to have, but they're
ken ouellette: so important because the next point to the
ken ouellette: plan is doing your your fireboat drills. Right?
ken ouellette: So
Don Mespelt: Okay. We
ken ouellette: want that that's the stress testing of the
ken ouellette: portfolio. If the market's down twenty five percent,
ken ouellette: what's our allocation? How does it look? How
ken ouellette: will our portfolio respond? How and more importantly,
ken ouellette: how do you feel emotionally when that happens?
ken ouellette: Because, yeah, that's the the real real struggle
ken ouellette: and to to be as a successful investor.
ken ouellette: So the price we pay the average the
ken ouellette: average annual return on equities is ten percent
ken ouellette: per annum. It's been like that forever. We've
ken ouellette: talked about that in past podcast. The price
ken ouellette: you pay for that ten percent is every
ken ouellette: three to five years, you gotta be down
ken ouellette: thirty. That's the price of admission. You can't
ken ouellette: get to ten without facing down being down
ken ouellette: twenty five or twenty at at some point.
ken ouellette: Yeah. It's just that is what you have
ken ouellette: to pay, and you have to weather that
ken ouellette: and do the right things at the bottom
ken ouellette: to be able to get that average annual
ken ouellette: return. So we do the fire drills more
ken ouellette: just to show the client. So that way
ken ouellette: we can see, okay. If the market's down,
ken ouellette: has a real bad year and it's down
ken ouellette: forty, you're down twenty. How are you gonna
ken ouellette: feel? The plan says you're gonna be fine,
ken ouellette: but how are you gonna feel emotionally? And
ken ouellette: we give them the dollar value. Right? Because
ken ouellette: everybody monetizes the law the high level the
ken ouellette: highest level they've ever hit on the on
ken ouellette: in the their value of their portfolio. Uh-huh.
ken ouellette: Everybody assumes that that's the that's the value
ken ouellette: that they're they're gonna always have going forward
ken ouellette: building upon. So if you got a million,
ken ouellette: you're down twenty percent. You're now at eight
ken ouellette: hundred thousand.
Don Mespelt: How are you gonna sleep that night?
ken ouellette: How are you gonna sleep? Now the plan
ken ouellette: says you you should sleep like a baby.
ken ouellette: Right? Because we we bake this in.
Don Mespelt: Uh-huh.
ken ouellette: How are you going to react? You know?
ken ouellette: Because what it doesn't just go from typically
ken ouellette: a million to eight hundred. It goes from
ken ouellette: a million to nine. And then you're like,
ken ouellette: wow. That's a hundred thousand dollars. Alright. Well,
ken ouellette: it you just probably got more to go.
ken ouellette: It goes down to eight hundred, then your
ken ouellette: mind starts to play little mental gymnastics with
ken ouellette: you, and you think eight hundred is going
ken ouellette: to six hundred, then it's going to four
ken ouellette: hundred, then it's going to zero. Yeah. So
ken ouellette: that's why we do, the fire drills. And
ken ouellette: I think that's an important part of of
ken ouellette: the, the planning process at the beginning of
ken ouellette: the year. Just it's just reeducation. And, you
ken ouellette: know, I sent out a nice newsletter to
ken ouellette: the clients at the beginning of this year,
ken ouellette: kind of outlining what we do in varying
ken ouellette: market cycles and why we do it, and,
ken ouellette: you know, we're not gonna change.
Don Mespelt: Yeah. Yeah. Plan. You have a plan too.
ken ouellette: Yep.
Don Mespelt: Right on. Ken, thank you for this talk.
ken ouellette: Yeah. We covered a lot in this one.
Don Mespelt: I thought so. I gotta go back, and
Don Mespelt: I'm gonna listen to this one twice myself
Don Mespelt: just to make sure I got everything.
ken ouellette: Yeah. I'd encourage, you know, the if there's
ken ouellette: one takeaway, just, plan your meeting. You know,
ken ouellette: make it make it, you know, I think
ken ouellette: that people change the batteries in their smoke
ken ouellette: detectors. You know, they do things every year.
ken ouellette: You know, put that that financial planning meeting
ken ouellette: at the forefront. Get it done in the
ken ouellette: first quarter of the year.
Don Mespelt: Then if you are brain dead like I
Don Mespelt: alluded to, you have people like you that
Don Mespelt: can help you out.
ken ouellette: Yeah. Yeah. We'll we'll what what will
Don Mespelt: Shock test it. Yeah.
ken ouellette: We'll, yeah, we'll shock you back into the
ken ouellette: reality. So
Don Mespelt: Right on.
ken ouellette: Because there's no downside to having that plan
ken ouellette: that planning meeting in the beginning of the
ken ouellette: year zero. I wouldn't.
Don Mespelt: Yeah. Kenolette, a life well lived, grow, preserve,
Don Mespelt: and transfer your wealth. Love you, man. You
Don Mespelt: have good knowledge.
ken ouellette: Well, thank you. And, as always, you know,
ken ouellette: reach out to us at Orca Wealth, o
ken ouellette: r c a w e a l t
ken ouellette: h. We have offices in Tampa and in
ken ouellette: North Carolina. So, you know, we pretty much
ken ouellette: cover the south and, and kind of the
ken ouellette: West Coast for you guys too. Yeah. Seven
ken ouellette: two seven seven four one six zero seven
ken ouellette: seven.
Don Mespelt: Have a great afternoon, sir. You too, Don.
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